Your firm currently holds a training program for all new incoming financial associates. The cost of this program is $30,000 per trainee (at the beginning of the hiring period) and all associates must attend the program in order to work at the firm. The annual salary of such associates is $120,000. Often they stay with the firm for three years and then move on to other companies, so your firm must hire and train new employees. In light of this turnover rate, you are considering to offer financial associates a sign-on bonus of $40,000 (received at the beginning of the hiring period), if they commit to staying for at least five years with the firm. The discount rate is 10 percent. Ignore taxes and inflation.
Is this bonus plan cost effective, why?
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